Red, Yellow and Silver Books, 2nd editions

Why have the contracts been updated?

FIDIC have stated that the aim behind the update is to improve clarity, transparency and certainty as well as take into account feedback from users of the 1st editions over the last 17 years.

What are the main changes?

The most significant overall change is that the contracts have become more of a project management tool setting out who is expected to do what, by when and what the consequences of non-compliance are.

Role of the engineer: which remains central to the administration of the contract, has expanded significantly. There is a new role for the engineer’s representative (who is expected to be on site full time); an obligation for the engineer to act ‘neutrally’ (FIDIC has accepted it is difficult for an engineer to be impartial, being paid and engaged by the employer) when seeking to reach ‘agreement’ or make a determination and new timescales within which the engineer is required to make a determination (failing which a claim will be deemed to be rejected and capable of being referred to the dispute board) and these changes are to be welcomed.

Greater emphasis on dispute avoidance as evidenced by:

1. a new early (or advance) warning process (inspired by the Gold Book) under which the employer, contractor and engineer are required to notify each other in advance of any known or probable future events which may adversely affect the work;
2. dispute adjudication boards being changed to dispute adjudication/avoidance boards (DAABs) along with a new requirement that those DAABs be ‘standing’ rather than ad hoc to improve the chances of avoiding a dispute; and
3. time bar provisions encouraging parties to deal with claims as they arise rather than wait until the end of the project. A number of these changes reflect principles that have been incorporated into other standard form construction and engineering contracts and also reflect dispute avoidance and dispute resolution procedures that are often added to the 1st edition contracts by way of amendments to the general conditions.

Increased programming obligations so that:

1. every payment application is to be accompanied by a monthly progress report;
2. the contractor is required to update the programme whenever it does not reflect actual progress;
3. the programme is to include additional details including logic links, float and critical path; and
4. if the engineer does not give notice of non-compliance within the required timescales the programme is deemed to comply with the contract.

Fitness for purpose: the contractor is to indemnify the employer in the event that errors in the contractor’s design mean the works are not fit for purpose. The harshness of this provision has been softened following feedback on the consultation draft and indirect and consequential losses are now excluded and the indemnity is subject to the aggregate cap on liability. However, it is likely that contractors (and their insurers) will look to amend these provisions.

Indemnity provisions: as well as the contractor’s ‘fitness for purpose’ indemnity referred to above the employer’s indemnities in favour of the contractor have been expanded to include:

1. loss or damage to property other than the works due to any negligence, wilful act or breach of contract by the employer or a party for whom the employer is responsible; and
2. loss or damage to the works for any of the grounds set out or referred to in clause 17.2 (which includes risks such as war, natural catastrophes, the employer’s use or occupation of the works).

Concurrent delay: the previous editions were silent on concurrent delay so, in the case of contracts governed by English law at least, the contractor would be entitled to an extension of time in the event of concurrent delay unless the contract said otherwise. The 2017 2nd editions require the parties to clarify how concurrent delay will be dealt with and to refer to these provisions in the particular conditions and it is likely that employers will attempt to transfer the risk of concurrent delay to the contractor.

The contractor’s grounds for an extension of time has expanded to include:

1. lack of suitability or availability of an access route where the access route is changed by a third party after the base date; and
2. delays caused by private utilities.

Notices: to improve transparency and avoid disputes about whether notice has been given, all notices have to be in writing and clearly state they are a ‘Notice’ (although the requirement in the consultation draft Yellow Book that the notice had to refer to the clause it was given under has not been included in the final editions). The Contractor’s Quality Management System also has to contain procedures to ensure that notices and other communications can be traced with full certainty. This is a helpful project management tool.

Claims: have been split out from the dispute provisions (which recognises the difference between a party claiming a contractual entitlement and disputes (i.e. where a claim has been rejected) and there is a new and very detailed (4½ pages long) procedure for dealing with them (including time bars (see below)).

Time bars: have been expanded to encourage both parties to comply with contractual timescales. For example:

1. if the engineer does not notify the contractor that the programme does not comply within the required timescale the programme is deemed to comply with the contract;
2. the 28-day time bar claim which applied to contractor claims under the 1st edition 1999 has been expanded to apply to employer claims. This follows the trend seen in other standard form construction and engineering contracts to encourage claims to be dealt with in real-time, rather than stored until the end of a project.

Both parties have additional rights to terminate: for example if the other party fails to comply with a binding agreement or final and binding determination of the engineer or a decision of the DAAB and the failure amounts to material breach.